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Doug Sheehan, President and Founder, Investment Conversions & Consulting (Portland, Ore.)
Doug Sheehan, President and Founder, Investment Conversions & Consulting (Portland, Ore.)
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Enhanced Investment Systems Offer Better Integration of Data

Keeping pace with regulatory trends will require insurers to explore various options, such as outsourcing the accounting function, to take full advantage of improvements in technology.

There are a few recent and pending technological enhancements to investment systems that create opportunities. The enhanced technical capabilities of external data providers -- such as the Depository Trust Company (DTC), brokers, market pricing providers and custody banks -- make it possible for insurers to have better integration with these data sources. This has great potential to improve data accuracy, timeliness and efficiency.

The technical complexity of maintaining an investment accounting system in-house is causing many companies to look more seriously at outsourcing the investment accounting function. The IT people have trouble staying current with new releases and dealing with the interaction of the investment accounting software with operating systems, databases, etc., and doing the necessary software testing to implement new releases. There are more alternatives for outsourcing now, and companies need to evaluate them and address their concerns for security and integration with other systems.

There are many regulatory trends that have an impact on financial reporting. Increased use of foreign and alternative investments, while not just a regulatory issue, is probably having the biggest impact on financial reporting for most insurance companies. The regulations for reporting on such investments are evolving and changing very rapidly, which is difficult for insurers to deal with. It is also the biggest single factor that is stressing existing accounting systems.

Sarbanes-Oxley has become somewhat mature, but it still governs most of what is done in investment reporting. Some of the lower-level regulatory issues, such as reclassification of some bonds as preferred stocks for statutory purposes, create substantial difficulty for existing systems. Mergers and divestitures also are consuming a great deal of accounting and system resources because of the needed changes to production systems.

Changes in the way reserve requirements might need to be calculated would probably require more-flexible reporting capabilities, which usually translates to better integration of data and a focus on data quality. It is too early to tell what the impact might be of the optional federal charter. The state-regulated Schedule D reporting for investment departments is still a huge force for insurance companies. It is hard to imagine this changing in any short time frame, under any circumstances.

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